HILLSBOROUGH COUNTY, Fla. — While President Trump's proposed tariffs on Canada and Mexico are currently on hold, we are seeing a lot of confusion circulating on social media about what a tariff is. That is why we are digging into the history behind tariffs and what it could mean for your wallet.
Tariffs have been used as a form of trade policy for centuries. To put it simply, a tariff is a tax on imported goods that makes foreign products more expensive and encourages domestic production.
“This is not the first time we are seeing tariffs," econ expert Seckin Ozkul from the Muma College of Business said.
He explained this is nothing new—tariffs have been around for centuries and played a pivotal role in the American economy. Sean Adams from the University of Florida takes us through a little history lesson.
“It was part of the fabric of the American economy for about 120, 130 years," Adams said. "Then, after the end of World War II, the US entered into a general agreement on trade and tariffs or G.A.T.T."
That eventually led to the creation of the World Trade Organization in 1995. Adams said the goal of that was to promote international trade by lowering tariffs.
The structure and impact of tariffs have evolved greatly over the years. Throughout history, they have been used to generate more revenue, protect American industries, and as a tool for foreign policy.
“We really see after World War II a period of free trade, kind of unprecedented in history. It's only recently that the tariff has become the political and economic tool for policymakers,” Adams said.
That brings us to the present day. Trump, Canada, and Mexico are negotiating after the president threatened a 25% additional tariff on imports from Canada and Mexico. He also imposed an additional 10% tariff on imports from China.
“President Trump is taking bold action to hold Mexico, Canada, and China accountable to their promises of halting illegal immigration and stopping poisonous fentanyl and other drugs from flowing into our country," the White House website reads.
Those potential tariffs on Canada and Mexico are now on hold, but if they do go into play, what would that look like for you?
"When a government imposes tariffs on imported goods, the cost of these products rises," Ozcul said. "It is very well intended to strengthen our domestic manufacturing and domestic production to make it more attractive to customers in the United States.”
Let’s break down how this could impact the price you pay for everyday products. Take a smartphone, for instance.
The following equation is an example
Imagine buying a phone from a retail store. The retailer buys that phone from an overseas manufacturer for about $500.
To make a profit, the store adds a 30% markup, which brings the price to $650. That is the price you’d pay with no tariffs involved.
Let’s add a tariff to the equation. Say a 25% tariff gets imposed. Then, instead of paying $500 for the phone, the retailer is paying $625.
In order to still make a profit, the retailer now has to mark that phone up more. With the same 30% markup, the phone ends up costing you around $812. That is a $162 increase.
This could be a bit of a hit for some consumers, but for US manufacturers, it could work in their favor. With foreign products getting more expensive, American manufacturers could find themselves more competitive in the market.
Ozcul said there is no way to predict exactly what could happen if the tariffs are implemented.
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